ABSTRACT Chronic hepatitis B virus (HBV) infection remains a significant public health burden affecting approximately 240 million individuals worldwide and at least 1.2 million in the United States, and is endemic in China where 8-9% of the populations are infected. Chronic hepatitis B (CHB) is one of the leading risk factors of cirrhosis and the deadly liver cancer. Therefore it is important to elucidate the mechanism of HBV persistence and find a cure for chronic hepatitis B. The development of HBV persistence is due to the failure of host immune system to clear the virus infection, and the longevity of the persistent form of HBV DNA genome, which is the covalently closed circular (ccc) DNA in a nuclear minichromosome structure. In this research project, we will set out to elucidate the role of the understudied hepatitis B e antigen (HBeAg) in HBV persistence. HBeAg positivity and high titer reflect the high level of HBV replication and immune tolerance in CHB patients. HBeAg seroconversion is usually considered to be a beneficial milestone and evidence of reduced viral replication. Our preliminary observations revealed the followings: (1) The numbers of circulating monocytic myeloid-derived suppressor cells (mMDSCs) in immune tolerant CHB patients are higher than healthy controls and immune active patients; HBeAg induces the expansion of mMDSCs and the upregulation of immune suppressor molecules including indoleamine 2,3- dioxynase (IDO) in mMDSCs, which in turn inhibit T cell proliferation and IFN-gamma production, suggesting that the HBeAg may induce immune tolerance/suppression through activation of mMDSC; (2) The intracellular HBeAg intermediate (p22), but not the supernatant mature HBeAg, inhibits the activity of interferon-sensitive response element (ISRE) and interferon-stimulated gene (ISG) expression under interferon-alpha (IFN-?) stimulation, suggesting that p22 may blunt IFN signaling to help the virus to evade innate immune response and become resistant to IFN therapy; (3) The nuclear localization of p22 indicates that, reminiscent of the HBeAg homologue HBV core protein which has been shown to bind cccDNA, the p22 may interact with cccDNA minichromosome and regulate its stability and/or transcription. By making use of a battery of HBV-related molecular biology, immunology, biochemistry, and proteomics technologies, and several innovative cell culture tools specially designed for HBeAg and cccDNA studies, we propose to further elucidate the mechanisms of the HBeAg-mMDSC-IDO axis-induced T cell suppression and the intracellular HBeAg-mediated blockage of IFN signaling, and the potential association of nuclear HBeAg with cccDNA and its function will be determined and compared to core protein. The accomplishment of this project will shed light on the mechanism of HBV persistence, and ultimately lead to the development of novel therapeutics to break the virus-induced immune tolerance and reset/reactivate the immune system to clear HBV infection.